STMicroelectronics Drops After Report - TheStreet

Shares of Swiss-based chip giant


(STM) - Get Report

dropped after the company swung to a loss on heavy restructuring charges and pointed the way to continuing charges down the line.

Investors were unappeased by the company's above-consensus results, which slightly exceeded WallStreet's top- and bottom-line estimates. STM stock lost $1.48, or 5.4%, to $25.92 in regular trading.

A Thursday morning note from U.S. Bancorp Piper Jaffray called STM's December quarter revenue outlookappears "solid," but added, "We believe the announcement of a major restructuring plan underscoresthe rapid need for major cost transfers. While we are encouraged by these actions, we believe a high degreeof uncertainty will persist in regards to the timing and final cost of this restructuring."

The bank says it's maintaining an underperform rating; it hasn't done banking for STM.

"Trends are encouraging but unspectacular," concluded a morning note from Paris-based OddoSecurities. "Q3 results were slightly ahead of consensus expectations but we doubt they amount to apositive surprise given the excellent performance of other sector companies such as


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, and the continuing pressure on STM's profitability."

This morning brought additional details of a wafer fab restructuring plan announced yesterday by STM thataims to make the company more cost-competitive and increase its capacity. According to report by Dow Jones, STM CEO Pasquale Pistorio said this morning that the restructuring will lead to 1,500 job cuts around the world.

STM, which makes analog chips and a type of memory known as flash, said yesterday it has launched arestructuring plan that involves migrating about 60% of its 6-inch wafer production either to finer geometry 8-inch fabs or to STM's 6-inch wafer fab in Singapore. As part of the plan, it will discontinue production at a fab in France, close a wafer pilot line in Italy, and downsize a fab in Texas.

The plan will be completed over the next 18 months and result in a pretax charge of about $350 million, of which an estimated 50% will be noncash items. Of the charge, $193 million was incurred in the 2003 third quarter; another $157 million in charges will be taken over time. STM estimates annualized after-tax cost savings of $120 million when it's finished.

According to a Thursday morning report by Dow Jones, STM's CEO said this morning that the restructuring will lead to 1,500 job cuts around the world.

Yesterday STM said sales rose 9.6% from last year to $1.80 billion, slightly above analyst estimates for$1.75 billion.